Formerly, it was the custom to base the expense ratio on the actual figure for the preceding year, which meant that changes in expense ratio were not taken into account for an entire year. As a result, the total manufacturing cost shown by the books at the end of the year, did not agree with the costs as figured in the cost department; it was usually much higher. By operating the controlling accounts, making accurate distributions of expense, the period can be limited to one month. Discrepancies are then quickly discovered and the necessary adjustment made in the expense ratio used. If it is found, at the end of the month that the true ratio of expense is higher or lower than for the preceding month, the percentage to be used for the next month is raised or lowered accordingly. With a careful distribution of the expense items each month, the variations in the ratio should be very slight. The objection is sometimes made that a monthly distribution of expense is inequitable──that certain expenses may be abnormally high in some months and below the average in others. But with proper controlling accounts, this objection ceases to be serious. Certain expenses are paid in one month that should be distributed over an entire year──as taxes, insurance, and repairs. The amounts charged to the expense distribution accounts each month, are only the amounts that should be apportioned to that month. Taking taxes as an example, one─twelfth of the entire amount should be charged each month. As an example of adjusting entries for controlling accounts, journal pages are illustrated, in Fig. 21, containing entries made at the end of the month──with explanations. It will be noted that the last entry is a charge to _manufactured goods_ account, and a credit to _manufacturing_ account of the total cost of finished goods, as shown in the report, Fig. 20. This account, _manufactured goods_, occupies the same position as a purchase account. It represents the cost of finished goods to the commercial division of the business. To this cost must be added an amount sufficient to cover selling expense and provide a profit, as is done when goods are purchased for resale. Selling expense should not be included in the cost department's figures; nothing should be added to the actual cost of manufacture, unless it is desired to add a small amount to provide a factory profit. [Illustration: Fig. 22. Journal Showing Adjusting Entries] [Illustration: Fig. 23. Journal Showing Adjusting Entries] _Manufacturing_ account has been charged for the cost of manufacture──material, labor, and expense──and credited with the cost of finished goods. This does not close the account, however, because all jobs started have not been finished, as there still is work in process. The _balance_ of the manufacturing account, then, represents the cost of this work and should agree with an actual inventory of work in process.